When Ken Allen was a student at Colby College in the late 1990s, he shot half the time and day traded the other half. When it came time to find a job, the economics major was stuck and first consulted a mentor who had introduced him to a former student. That connection brought the Maine native to T. Rowe Price in Baltimore. Since joining the investment management firm in 2000, Allen has worked his way up the corporate ladder and in 2009 became a Portfolio Manager for the T. Rowe Price Science & Technology (PRSCX) Fund. Launched in 1987, this growth fund aims to capitalize on innovation. The latest artificial intelligence boom has fueled gains in technology stocks that were battered last year, with shares soaring nearly 38% in 2023. Over the long term, the fund has an expense ratio of 0.84%, providing 10-year and 15-year trailing investment returns in excess of 16% and around 13%, respectively. PRSCX YTD share price up in 2023 Since Allen started managing the fund worth more than $7 billion, key to his strategy has been finding stocks he believes are undervalued and aligning his investment framework around cash flow analysis. Allen also sees solid, independent research as a key part of his methodology. This year, Allen has benefited from a surge in tech stocks largely fueled by a frenzy over all things artificial intelligence. That said, “I try to be very disciplined about valuation,” Allen insists. “I think, especially in tech investing, valuation tends to be overlooked or largely ignored.” Betting on FAANG Stocks PRSCX owns all the major FAANG brands (Meta, Apple, Amazon and Alphabet) except Netflix , and Nvidia and Advanced Micro Devices, major chipmakers benefiting from AI, are up 189% and 70%, respectively, this year. Other major holdings include Microsoft, Salesforce and German online retailer Zalando. Together, Microsoft and Alphabet accounted for nearly a fifth of the fund’s portfolio as of March 31. Both stocks are up more than 38% this year as investors bet on the promise of artificial intelligence, and both companies are working to provide artificial intelligence services. Best generative artificial intelligence models. But the fund has favored Microsoft since 2008 and bought Alphabet last summer, long before its most recent rally. Allen expects recent technology trends to continue to boost what he sees as high-quality stocks, and applies the same philosophy to Amazon — currently the fund’s fourth-largest holding. Allen is backing Microsoft even as the PC-fueled downcycle and uncertainty rock the tech sector in 2022, sending the Xbox maker’s stock down about 29%. Allen took a position in Alphabet last year when a slowing ad cycle drove many investors away from the Google parent company and its price-to-earnings ratio fell into the teens. Allen sees no change in its solid fundamentals. “It’s unusual to get a great business at a lower-than-expected price-to-earnings ratio, which is why I feel very comfortable with a particularly large position in the stock,” he explained. Last year, the same thinking underpinned A. Lun’s confidence in Salesforce despite a 48% plunge in the company’s stock price, a slowdown in business and the announcement of the co-CEO’s departure. The stock has proven to be one of Allen’s biggest losers in 2022, but the portfolio manager expects sharp gains as IT spending improves. Salesforce has rebounded more than 58% this year. “I’ve looked at this company and I think it’s a strong revenue growth company with massive margin growth and it’s trading at 15x free cash flow, a business of that size just doesn’t make sense to me .It would be nice to have a discount like that,” Allen said. Given Allen’s focus on valuations, he recently pulled back on investments in some tech companies that had rallied, slashing stakes in Nvidia, Meta Platforms, Advanced Micro Devices, and Amazon. Unusual strategies and new additions Not every name in Allen’s portfolio has been widely bought by Wall Street. Allen said that despite Zalando’s recent sell-off, the company’s shares looked “very cheap” and that the company appeared well-positioned to capture market share with its broad product selection. He said the stock was one of Allen’s top 10 stocks as of March 31, was undervalued by at least half based on its long-term cash flow projections, and by his calculations could rise in the coming years double. Accenture this week forecast lower-than-expected revenue for the quarter, but the company remains a “best-in-class” technology services firm that can guide companies in implementing artificial intelligence. It was Allen’s seventh-largest holding as of the end of March. Recent additions to the fund include Mastercard, Apple and Texas Instruments. While Mastercard stock has underperformed many tech giants, Allen believes it has similar growth potential and is less cyclical and less risky. Texas Instruments (TI) also took a low-risk approach. While the analog semiconductor company has a less than 2 percent lead this year, the analog semiconductor company has a strong track record of driving shareholder value and returning capital through buybacks and dividends, Allen said. TXN yields 3%. Lately, the T. Rowe Price fund has outperformed the broader market even as shares have tumbled. The fund fell more than 35% during last year’s rout, but other tech funds fell an average of 37.4%, according to Morningstar. For Allen, each investment and each cycle marks another learning opportunity to perfect his craft. “It’s really important to learn over time when things are going well, and especially when things aren’t going well,” Allen said. “One of the things I’ve focused on for 23 years has been thoughtfully evaluating what I can do to gradually get better while sticking to a process I believe in.”